"To get rich is glorious." -- Deng Xiaoping. This is perhaps the smartest thing ever uttered by a member of the Communist Party.

Sunday, April 03, 2011

Income inequality and schools

Robert Frank, a Princeton economist whose blitherings have previously been picked apart by this blog here and here, devotes yet another column to his favorite hobby-horse of income inequality. Conceding that "the costs of income inequality are notoriously hard to measure," Frank constructs something he calls the "toil index" to better illustrate its harm. In a nutshell, the index "measures the number of hours that median earners must toil each month to be able to rent a house in a school district of at least average quality."

Thus, rising income inequality negatively impacts middle and lower-income families through the following dynamic:

Rising inequality has shifted the context that governs housing choices. Higher incomes at the top have led the wealthy to build bigger mansions, shifting the frame of reference that shapes demands for those with slightly smaller incomes, who travel in overlapping social circles. The near-rich respond by building bigger houses as well, shifting the frame of reference for others just below them, and so on, all the way down the income ladder.

This shift has affected not only subjective evaluations, but also the cost of achieving basic goals, like sending one’s children to a good school. School quality is an inherently relative concept, too, and good schools tend to be in more expensive neighborhoods. The toil index rests on the positive link between a neighborhood’s average housing price and the quality of the school that serves it.

This link implies that the median family must outbid 50 percent of all parents to avoid sending its children to a below-average school. Families that failed to rent or buy a house near the median of the local price range would have to send their children to below-average schools. The only alternative to seeing their children fall behind is to keep pace with what others are spending.

This seems perfectly plausible. School quality is relative, districts with high housing costs driven by rich residents have the best schools, and thus parents must spend a huge amount of their income on housing to live in a rich district and send their kids to a good school.

The problem here, however, is not income inequality, but a nonsensical linkage between geography and school quality. Indeed, the dynamic Frank describes is only true for K-12, as colleges and universities are not assigned based on geography (imagine the impact on quality if they were). Replace our current monopolistic system in which children are assigned to schools based on where they live with school choice and the problem disappears. Given Frank's political leanings, my guess is he opposes such reforms (although I could be wrong).

The question still stands: if income inequality is such an obvious problem, why do those who raise the issue struggle so mightily to explain why it should concern us?

Related: Upon doing some more research on whether Frank supports school choice I found this Cato Institute blog entry from April 2008. Seems Frank is using his latest NYT column to recycle the linkage between income inequality and education, with Tim Lee also noting that it is a great argument for school choice. Hey, great minds think alike.